Origination

Morgan Keegan & Co., Memphis, Tenn., will market Farmer Mac loan programs designed specifically for its bank clients which hold agricultural loans in their portfolios. The primary program to be offered under this agreement is Farmer Mac's Long-Term Standby Purchase Commitment, which shifts the credit risk on loan pools from the bank to the government-sponsored enterprise. Michael Gerber, president of Farmer Mac, said the LTSPC program is designed to give banks that lend on agricultural properties "a reasonable price option to improve a major indicator of their financial health and to help restore their ability to grow their balance sheets." Loans in the LTSPC program are expected to receive favorable capital treatment, freeing up the bank's capital to be used for other purposes.

Fitch Ratings, Chicago, believes that the title industry's 2010 revenue decline could range between 10% and 15%, based on the projected fall-off in mortgage origination volume. This level of title revenue deterioration would lead to further pressure on profit margins; three out of the four national title groups were profitable in 2009, and the fourth, Stewart, was profitable in the fourth quarter. But any item that affects profitability will likely lead to further expense initiatives by title underwriters, said the Fitch report, written by Douglas Pawlowski, title sector head and senior director. The report noted the two largest national title companies, Fidelity and First American, reported underwriting results that were markedly better than the competition, Stewart and Old Republic. Because they had better operating margins, Fidelity and First American are in a better position to report profits for 2010, the report said. Right now, Fitch has the title industry on "negative" outlook status. To improve it to "stable," there needs to be evidence of title insurers being able to generate sustainable profits and margins nearer to historical averages. This, Fitch continued, will foster improved capitalization from retained earnings. Mr. Pawlowski added "given expectations for a significant decline in title revenue in 2010, an underwriter that does not demonstrate an ability to modify expenses to match revenues or has insufficient surplus to cushion against another downturn in profitability will be at greater risk for a downgrade in the near term."

The Federal Deposit Insurance Corp. sold $1.37 billion of structured guaranteed notes backed by residential and construction loan assets from Corus Bank. It follows its debut offering from last week. Sources familiar with the deal said the offering was priced into strong demand, according to a report in Structured Finance News, an affiliate of National Mortgage News. The sale included $150 million of 1.62-year notes that priced at 18 basis points over Eurodollar swap futures; $850 million of 2.62-year notes that priced at 21 basis points over interest rate swaps; and $377.35 million of 3.62-year notes that priced at a spread of 24 basis points over swaps, market sources said. Barclays Capital was sole underwriter for the offering, which was the same for last week's deal. The sale follows last week's sale of FDIC's $1.8 billion securitization backed by option ARM mortgages that also priced via underwriter Barclays Capital. That deal was divided into a $1.33 billion floating-rate transaction and a $480 million fixed-rate deal. The transaction saw its floating rate portion priced 10 points tighter than the initial price guidance of 65 basis points over one-month Libor and a portion of the fixed rate tranche priced five to 10 points tighter than the initial price guidance of 90 to 95 basis points over i-swaps. The two deals are part of the total $3.85 billion of securitizations that the FDIC is selling to investors that are guaranteed by the government. All of the deals are backed by residential mortgage loans and construction loan assets from failed banks that the FDIC took over.

GMAC Financial Services has hired Goldman Sachs to start the process of selling the company's money-losing mortgage unit Residential Capital Corp., according to a new published report. In recent weeks spokespersons for GMAC have repeatedly said that a sale is not under consideration at this time but only that the company is considering its "strategic alternatives." Several weeks back, news reports surfaced that GMAC had engaged Goldman and that Berkshire Hathaway was in talks with the company regarding ResCap, the nation's fifth largest residential servicer. As reported by National Mortgage News, over the past two weeks several managers have been let go in ResCap's servicing division, including 24-year veteran Tony Renzi. Investment bankers following ResCap say selling the company could prove difficult because of the representations and warranties the government-owned company would need to provide any buyer. The new report concerning ResCap was published by The New York Post. On Friday a GMAC spokeswoman declined to specifically address the sale issue raised by the Post story.

GMAC Mortgage LLC's corrective actions related to an unusual servicing practice that could hurt ratings on nearly $6 billion of RMBS it services are scheduled for completion by April 1, according to a Moody's Investors Service report. The rating agency said it is monitoring the corrective actions and will consider them in the context of almost $6 billion GMACM RMBS currently on review for possible downgrade. The practice being corrected is that of netting the cash flows of multiple residential MBS in a single custodial trust. This could lead to competing claims in a bankruptcy scenario, particularly given that GMAC's parent company, Residential Capital LLC, has the lowest rating possible before default, said Moody's vice president and senior credit officer Eric Fellows. (GMACM and ResCap are both downstream affiliates of GMAC Financial Services, a bank holding company.) The netting practice is not typical in the industry, said Bill Fricke, a Moody's VP/SCO whose responsibilities include a focus on servicing issues. He said if the rating agency did discover another servicer using such a practice it would be a "red flag," regardless of what the rating of the corporate entity involved was. Moody's said GMACM also previously had a similar issue involving "certain notes associated with its servicing advance facility" that it believes the ResCap subsidiary has corrected by establishing "segregated trust-specific custodial accounts for RMBS trusts." There were roughly several hundred million dollars worth of SAF notes that were placed on watch for possible downgrade in February as a result of this and they will probably remain there until Moody's has finished monitoring them through a full cycle ending in March, Mr. Fellows said. Moody's said GMACM has a similar corrective plan for the close to $6 billion in RMBS affected by the more recent review for possible downgrade. Moody's also will monitor this in a similar manner, Mr. Fellows said. ResCap, which has issued a statement saying it is correcting the situation, did not return a call for further comment. Mr. Fellows said the company has been "very receptive" to correcting the problem.

Mortgage bankers funded roughly $414 billion of new home loans in the fourth quarter, the industry's worst quarter of the year and an indication that production -- as anticipated -- will be weaker in 2010. During the quarter, refinancing volume represented 59.1% of all loans originated, the worst showing since 4Q08 when refis amounted to 44.4% of volume. According to figures compiled by National Mortgage News and the Quarterly Data Report, all residential lenders funded $1.9 trillion of loans in 2009, a 19% gain from 2008, a year when the housing and credit markets collapsed. If the 4Q run-rate keeps pace for the next four quarters, 2010 will turn out to be a $1.6 trillion year for lenders. But with interest rates expected to rise and Fannie Mae and Freddie Mac continuing to tighten their underwriting requirements (and fees), mortgage bankers are uncertain about the year.

The Obama administration is working on a national program to address negative equity, but first it wants to test existing programs managed by state housing finance agencies. Finance agencies in Nevada, Arizona, Florida, Michigan and California are expected to submit proposals to the Treasury Department in a few weeks. "Many of these state agencies already have programs up and operational that we could enhance or change -- that could get going very quickly," HUD secretary Shaun Donovan told Senate appropriators. The Treasury Department is offering to divvy up $1.5 billion to state agencies, testing their efforts to assist underwater borrowers in negotiating with lenders to write down their mortgages. The funds also will be used to assist unemployed homeowners. "We want to test models that potentially could be used in other states," the secretary told Sen. Patty Murray, D-Wash., who chairs the Department of Housing and Urban Development appropriations subcommittee. Sen. Murray wanted to know if the 250,000 underwater homeowners in her state would benefit from the $1.5 billion program that President Obama unveiled in Nevada several weeks ago. "We are looking at broader national efforts around negative equity and unemployment that could target the issues that you are talking about in your state," Secretary Donovan said.

The Federal Deposit Insurance Corp. has extended its "safe harbor" policy for six months while its board continues to work toward the adoption of new securitization standards. The safe harbor, which was due to expire March 31, assures investors that the FDIC will not seize or delay payments on securitized assets sold by failed banks and thrifts. The blanket policy applies to all securitized assets. But going forward, FDIC chairman Sheila Bair wants to condition this protection to securitizations that meet certain standards. In November, FDIC issued a proposed rule that outlines new securitization standards, which are designed to prevent a re-occurrence of the originate-to-distribute model that fueled the subprime boom. The standards include risk retention that would require banks to retain 5% of the credit risk when they securitize mortgages and other assets. The comment period on the proposal ended February 22 with the proposal drawing strong opposition from several industry groups. Even FDIC directors are divided on the issue. However, chairman Bair says she cannot ignore the losses FDIC has suffered due to the "misaligned incentives in mortgage finance. We hope to foster a sustainable securitization market that emphasizes transparency, improved clarity in transaction structures and responsibilities," she said. "We appreciate the board's decision to extend the existing Safe Harbor protection to September 30th," said Tom Deutsch of the American Securities Forum. "As our members indicated in our letter to the FDIC last month, the ASF strongly believes the proposals, which include significant preconditions for safe harbor protection, will create substantial uncertainty for investors, thus harming the drive to reopen securitization markets and get credit flowing to Main Street," the AFS executive director said.

Stung by warehouse lines it made to the now-defunct Taylor, Bean & Whitaker, Ocala, Fla., Sovereign Bank of Pennsylvania has decided to exit the sector, according to warehouse lending officials and customers that received credit from the bank. Sovereign officials declined to comment. The bank's decision to leave the market comes as more banks are considering either getting into warehouse lending or expanding their presence in the market -- but only for well capitalized nonbanks. "I think the days of unavailable warehouse credit being a huge problem could be coming to an end -- if you have enough capital," said one New York-based mortgage advisor. Meanwhile, at least two investors are still talking with PNC Financial Services about buying the warehouse division it inherited through its purchase of National City Corp. The NCC unit recently extended some of its existing lines to certain nonbank customers. PNC declined to comment.

An appraiser working with an appraisal management company has on average more than 15 years of experience appraising residential properties, according to a new survey conducted by the Title Appraisal Vendor Management Association. Furthermore, 87% of appraisers used by TAVMA members are certified appraisers, a designation that requires more experience and an additional level of testing above the state-licensed level. Opponents of the Home Valuation Code of Conduct have questioned the experience and expertise of appraisers that work through AMCs. Jeff Schurman, executive director of TAVMA, said "We surveyed our members to answer the allegations that brokers and Realtors have been making in the media, regarding the experience levels of AMC appraisers. Our member survey clearly shows that not only are AMC appraisers experienced, the vast majority hold the higher, certified-level, appraisal credential."